Going to try selling some covered calls for the first time. I am really trying to avoid having to be assigned because of tax implications. I have decided to sell 2 week options at a strike prices that keep the deltas in the .15 range (lower assignment risk, but lower premiums).

I have spent time watching videos and reading information on how to identify a stock's momentum, but looking at 5 years of my stock's historical price movement, I have not been able to come up with an indicator strategy that would weed out any of the previous 2 week intervals where an assignment would have happened.

I figure there must be some sort of combination of indicators that would help identify price take-offs at least some percentage of the time. I realize some stock take-off events cannot be identified because of news headlines, political events, and other things you can't really forecast.

Any help would greatly be appreciated.

Before you get valuable advice on cups and saucers and such, I'll try to address your reasoning for the overall strategy.

If you're worried about tax implications, covered calls may not be your best vehicle to protect gains (which I'm inferring is your main objective, here?). You may want to investigate buying puts on the underlying stock as an alternative form of "insurance", without the potentially large capital gains hit. You can scale it to approximate what you're trying to achieve with the covered calls. If the price goes up materially, you can lose most or all of your initial options investment, but you're happy that your underlying has increased. If the price goes down materially, you can make up most or all of your loss in the underlying with the gain on the puts (with a much smaller tax hit than a forced liquidation of the stock).

Just another method for you to consider. I use it all the time for my after-tax accounts. Covered calls are great for retirement money, and in your taxable account, if you think capital gains rates may be on the increase in the future, you could probably do worse things than taking a nice realized gain at today's rates.

I agree that covered calls may not be for you if you absolutely do not want the tax implication.

As far as strategy, let's say my stock is trading at $100, and I sell some $105 calls for $1 that expire two weeks out. My thinking is that I will either pocket the $1, which is roughly a 26% annual return and reassess, or I will make 6% in two weeks and be extremely happy with that. That is why I sell covered calls.

As far as momentum and patters, I will give you my current personal experience. AMD was languishing around $100 a couple of weeks ago, around $105 last week. It opened today around $112 and I decided to sell $119 calls for this Friday. Well, it closed at $116. I have been watching AMD stock pretty closely since 2013, and I still don't know what it will do. This move wasn't even on earnings or an event. This is a retirement account, so taxes aren't relevant, but i don't like seeing my stock called away either.

Now, this is NOT advice. This is only my opinion,

Here's the crux of the matter: If you can figure out how to sell upside calls (for more than just a nickel) and never have your stock called away, you are likely doing it wrong. If you can predict a stock that well, then there is REAL money to be made in other instruments like just buying outright calls or puts, depending on the direction.

I do not know your individual tax situation. I am going to go out on a limb and say that the capital gains rate will never be lower than it is right now, at least in my lifetime (I'm 52). Frankly, I can't believe it hasn't already been raised by the Biden administration this year. Unless you are handing that stock down to heirs or giving it to someone, you are going to have to pay taxes on those gains. Once again, this is NOT advice, and I do not know your individual tax situation.

I am also curious what the stock is? If it is a volatile tech stock, it could easily go to the moon. if it is a boring industry stock, then the premiums you would get probably wouldn't justify the worry it might get called away.

Bonfire97 said:

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Going to try selling some covered calls for the first time. I am really trying to avoid having to be assigned because of tax implications. I have decided to sell 2 week options at a strike prices that keep the deltas in the .15 range (lower assignment risk, but lower premiums).

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youve been watching that stock for 5 years, so you have a good idea of how it fluctuates

as far as CCs and not getting assigned, since your stock is relatively stable, you could always roll your calls forward to better avoid assignment

for instance:
- if your stock XYZ is $100
- you sold 2wk calls for $105
- on wed/thurs/fri of wk2, XYZ is hovering at $106
- you could, in one whole order, (1) buy to close your $105 calls + (2) sell to open CCs 2wks down the road [back at 105 {the higher you go, the less your premium would be}]

now, this is not bulletproof, but if you "know" that your 5yr stock stays in a particular range...

having said all that, every time you sell a CC, you will get taxed on it (unless you do it in a tax-sheltered vehicle)